Is NVIDIA On Its Way Down?

Key Points

• The markets are currently experiencing a global tech sell-off due to fears of a recession and potentially an emergency rate cut from the Federal Reserve.
• There are rumors of delays in the NVIDIA production of a new AI chip. 
• NVIDIA has an extremely high PE ratio, but it can be argued this is justified. 
• The NVIDIA stock split could cause a “generational buying opportunity.”
• NVIDIA trades below key moving averages and beyond a Fair Value Gap. Can it break $100 again?

The Global Tech Sell-Off

It is safe to say the markets are tense right now. A series of weaker data prints triggered a global stock market sell-off, with the S&P 500 falling by 9%. The US labor market had always been the one sector of the economy that seemed bulletproof, but that all changed on last Friday’s Non-Farm Payrolls report, which was the weakest since February 2021. In truth, stocks were falling before NFP day, but this escalated matters. At the same time, the markets bounced in recent days, leaving investors to wonder whether the recent crash was a market correction or the beginning of a bearish trend.

No one truly knows if there will be a recession, but the Sahm Rule suggests there will be, and it has a 100% accuracy rate in predicting recessions dating back to the early 1970s. Although this is now NVIDIA-specific, it is still a tech giant that has experienced exponential growth in the last couple of years, so it will likely suffer badly if the current trend continues.

New AI Chip Production Delays

This week, it was reported that the next-generation artificial intelligence chips from the Blackwell system will be delayed for at least three months because of design flaws, sending NVIDIA stock tumbling.

An NVIDIA spokesperson told Investopedia, “Blackwell sampling has started, and production is on track to ramp” in the second half of the year, adding, “beyond that, we don’t comment on rumors.” As a result, the NVDA stock price has recovered, but any more rumors surrounding delays will likely keep putting pressure on the stock price.

NVIDIA’s High PE Ratio

A factor to consider when determining NVIDIA’s next stock price move is its price-to-earnings (PE) ratio. In theory, a high PE ratio means that a stock is expensive and indicates that it could fall in the future. Conversely, a low PE ratio means that a stock is undervalued, and its price could rise in the future.

As per fullratio.com, NVIDIA’s current PE ratio is 60.26 and is 20% above the historical average. However, this has fallen from last year when the PE ratio reached as high as 146. Also, since then, NVIDIA’s earnings per share (EPS) have skyrocketed. To conclude, considering the stock price has already tumbled in recent weeks, it could be argued there is much more room for growth in the future.

A Generational Buying Opportunity?

Artificial intelligence is predicted to create trillions of dollars in economic value over the next decade, and NVIDIA is currently the “AI darling.” The issue of how accessible buying NVIDIA stock is for the retail investor has been raised, but there has since been a solution: exchange-traded funds.

iShares Expanded Tech Sector ETF (NYSEMKT: IGM) conducted a 6-for-1 stock split, which essentially increased the number of shares by 6x and reduced the price by the same amount. This entices investors who may not be able to buy NVIDIA stock at the current price levels and will keep the demand for NVIDIA stock high heading into the future.

NVIDIA Stock’s Next Big Move

over the last few years, NVIDIA’s stock price has had a monstrous run. After starting the year at $48 per share, the price skyrocketed to $140 per share, a 193% gain. Since then, for the reasons stated in the article, the price has fallen as far as 36% and briefly traded below $100 per share after filling the Fair Value Gap. When you put things into perspective, though, the stock is still up 157% this year…

For most stocks, a 36% fall in any asset is considered more of a crash than a correction, but NVIDIA is different. Artificial intelligence is not going away, and NVIDIA is expected to lead the way, as it has done. This makes NVIDIA an attractive buy at $100 in the long term.

In the medium term, however, there could be more pain due to factors out of NVIDIA’s control. Any significant slowdown in the US and global economy will likely hurt NVIDIA badly, and we could see the price test for the 200-day moving average in yellow at $81. If this fails to act as support, watch out for a test of the yearly open at $48, which would be a fantastic opportunity to get involved in the “NVIDIA hype.”